System and Method for Dynamically Determining Quantity for Risk Management

ABSTRACT

A system and method for dynamically determining quantity for risk management are described. According to one example embodiment, as a trader positions an order icon at a desired price or price-derivative value on a graphical interface, an order quantity for the order is dynamically determined based on the order price and a selected risk management formula. A trader can change the price or the price-related value for one or more orders by moving the order icons relative to a price axis on a graphical interface. In such an embodiment, the initially calculated order quantity for each order will be dynamically recalculated based on the modified orders for the trading strategy.

CROSS REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.16/425,561 filed on May 29, 2019, which is a continuation of U.S. patentapplication Ser. No. 14/828,017, filed on Aug. 17, 2015, now U.S. Pat.No. 10,354,326, which is a continuation of U.S. patent application Ser.No. 13/558,328, filed on Jul. 25, 2012, now U.S. Pat. No. 9,159,103,which is a continuation of U.S. patent application Ser. No. 12/789,016,filed on May 27, 2010, now U.S. Pat. No. 8,271,903, which is acontinuation of U.S. patent application Ser. No. 11/409,346, filed onApr. 21, 2006, now U.S. Pat. No. 7,861,185, which is acontinuation-in-part of U.S. patent application Ser. No. 10/749,000,filed on Dec. 30, 2003, which claims the benefit of U.S. ProvisionalApplication No. 60/504,947, filed on Sep. 22, 2003, the entire contentsof each of which are incorporated herein by reference for all purposes.

FIELD OF INVENTION

The present invention is directed towards electronic trading. Morespecifically, the present invention is directed towards a method ofmanaging risk in an electronic trading environment.

BACKGROUND

In recent years, a trend towards electronic trading has becomewell-established, causing one major exchange after another to replace orat least supplement the traditional open outcry, where a trade is doneface to face, with electronic systems which automatically match bids andoffers. While the motivation behind using electronic trading may varyfrom market to market, greater efficiency and volume are some of theconsiderations.

In particular, subscribing traders are connected to an exchange'selectronic trading platform by way of a communication link and throughan application program interface to facilitate real-time electronicmessaging between themselves and the exchange. The electronic messagingincludes market information that is sent from the electronic market tothe traders. Market information may include data that represents justthe inside market. The inside market is the lowest sell price (best ask)and the highest buy price (best bid) at a particular point in time.Market information may also include market depth. Market depth refers toquantities available at the inside market and can also refer toquantities available at other prices away from the inside market. Thequantity available at a given price level is usually provided by thehost exchange in aggregate sums. In other words, a host exchange usuallyprovides the total buy or the total sell quantity available in themarket at a particular price level in its data feed. The extent of themarket depth available to a trader usually depends on the host exchange.For instance, some host exchanges provide market depth for all or manyprice levels, while some provide only quantities associated with theinside market, and others may provide no market depth at all.Additionally, the host exchange can offer other types of marketinformation such as the last traded price (“LTP”), or the last tradedquantity (“LTQ”).

Just as with an open-outcry exchange, an electronic exchange can listany number of tradeable objects. Traders may choose to trade onetradeable object or more than one tradeable object, and they maysimultaneously trade tradeable objects that are listed at more than oneexchange. Ordinarily, each tradeable object has its own separate streamof market information. Therefore, in these instances, the traders willgenerally receive more than one stream of market information such thateach stream of market information attempts to characterize a giventradeable object.

As used herein, the term “tradeable object” refers to anything that canbe traded with a quantity and price. For example, tradeable objects mayinclude, but are not limited to, all types of traded financial products,such as, for example, stocks, options, bonds, futures, currency, andwarrants, as well as funds, derivatives, and collections of theforegoing. Moreover, tradeable objects may include all types ofcommodities, such as grains, energy, and metals. Also, a tradeableobject may be “real,” such as products that are listed by an exchangefor trading, or “synthetic,” such as a combination of real products thatis created by the trader. A tradeable object could also be a combinationof other tradeable objects, such as a class of tradeable objects.

Once the traders receive market information corresponding to a tradeableobject, the market information may be displayed to them via theirtrading screens. Upon viewing the information, traders take certainactions including the actions of sending buy or sell orders to theelectronic market, adjusting existing orders, deleting orders, orotherwise managing orders and risk.

A commercially available trading screen that allows a trader to trade inan electronic environment is X_TRADER® from Trading TechnologiesInternational, Inc. of Chicago, Ill. X_TRADER® also provides anelectronic trading interface, referred to as MD Trader™. Portions of theX_TRADER® and the MD Trader™-style display are described in U.S. Pat.No. 6,772,132 entitled “Click Based Trading with Intuitive Grid Displayof Market Depth,” filed on Jun. 9, 2000, U.S. Pat. No. 7,127,424,entitled “Click Based Trading With Intuitive Grid Display of MarketDepth and Price Consolidation,” filed on Oct. 5, 2001, U.S. Pat. No.7,389,268, entitled “Trading Tools For Electronic Trading,” filed onApr. 19, 2002, and U.S. Pat. No. 7,228,289, entitled “A System andMethod for Trading and Displaying Market Information in an ElectronicTrading Environment,” filed on Feb. 28, 2003, the contents of each areincorporated herein by reference.

Using a trading screen a trader can set order parameters before sendingthe order to an electronic exchange. Specifically, a trader could openan order ticket before placing an order. Within an order ticket thetrader can manually set, among other parameters, the desired price andthe desired quantity. The trader must then select a send button tosubmit the order to the electronic exchange with the defined parametersassociated with it. Another common method of manually setting orderparameters is to use a single action method of entering orderparameters, where the trader defines a default quantity and using amouse the trader selects the price level at which to place an order.When the order is submitted it has the trader-defined default quantityassociated with it.

There are a number of risk management formulas available to assisttraders in managing risk. Conventionally, the traders utilize the riskmanagement formulas and then manually calculate a result that can help atrader determine how they should trade to maximize profits and minimizerisk. These variables may be based on, among other things, riskparameters or market conditions.

Some traders feel that the quantity associated with an order is somewhatarbitrary in that it does not matter what the quantity is, but simplythat the market moves in the direction trader's of the submitted order.However, the decision regarding how much quantity to associate with agiven order can be as important as the decision of what price level atwhich to place the order. While a trading system may assist the traderin what to trade, when to trade, and at what price to trade, it is justas important for a trading system to aid the trader in determining howmuch quantity to trade in order to maximize profits and minimize risk.

There continues to be a need for a risk management tool that will allowtraders to more accurately manage risk when placing orders through anorder entry trading screen in an electronic trading environment.

BRIEF DESCRIPTION OF THE FIGURES

Example embodiments of the present invention are described herein withreference to the following drawings, in which:

FIG. 1 is an example network configuration for a communication systemutilized to access one or more exchanges;

FIG. 2 is a block diagram illustrating an example client device that canbe used to carry out the example embodiments;

FIG. 3 is a block diagram illustrating an example icon orientedexecution application that can be used to carry out the exampleembodiments;

FIGS. 4A-4B are a flow chart illustrating an example method for tradingusing execution icons and risk management;

FIG. 5 is a block diagram illustrating a plurality of graphical iconsthat can be used to represent a plurality of order types;

FIG. 6 is a block diagram illustrating one example order executiontoolbar including a plurality of order type icons;

FIG. 7 is a block diagram illustrating one example order execution toolbar including an invoked risk management menu;

FIG. 8 is a block diagram illustrating one example trading strategyincluding an Order Cancel Order (“OCO”);

FIG. 9 is a block diagram illustrating two example trading strategiesdefined using a plurality of order execution icons;

FIG. 10 is a block diagram illustrating another example embodiment of atrading strategy defined using a plurality of order execution icons;

FIGS. 11A and 11B are block diagrams illustrating example graphicalinterfaces that can be used by a trader to place orders;

FIGS. 12A-12D are block diagrams illustrating example graphicalinterfaces that can be used by a trader to configure a trading strategy;

FIG. 13 is a flow chart illustrating one example method for placing anorder with predefined risk parameters corresponding to a risk managementformula; and

FIG. 14 is a block diagram illustrating a graphical interface used toplace and modify orders according to a selected risk management formula.

DETAILED DESCRIPTION I. Overview

A system and method for managing risk by dynamically determining anorder quantity to be used for an order to be placed at an electronicexchange are provided.

A difficult decision for a trader to make, is how much money to risk oneach order. Risk management can be achieved through proper sizing ofeach order in terms of the risk-reward preference of the trader, groupof traders, or trading firm. Determining the quantity to be used with anorder is critical to risk management. Risking too little quantity on anorder and traders may not gain the maximum amount of profits; riskingtoo much quantity on an order and the losses could cost a trader histotal equity. Somewhere in between risking too little quantity and toomuch quantity is where a trader can gain the maximum potential forlong-term profits.

As will be described in greater detail below, a trader can establish atrading strategy by placing a number of order icons in relation to avalue axis, such as a price axis, on a graphical interface. The ordericons corresponding to a single strategy can be graphically connected toenable a trader to quickly determine the relationship between the ordersthat correspond to the same trading strategy. The relationship betweenthe orders of a trading strategy may indicate order executionprecedence, such as order dependency, or yet some other relationship. Atrader can easily move the order icons on the graphical interface toeffectively change a price for one or more orders that create thetrading strategy.

According to the example embodiments, an order quantity associated witheach order can be dynamically determined based on order price andapplicable risk management formula, rather than using an order ticket orsingle action method to manually associate a quantity with an order, asdone with conventional trading screens. According to one exampleembodiment, as a trader positions an order icon at a desired price orprice-derivative value on a graphical interface, an order quantity forthe order is dynamically calculated based on the order price and anapplicable risk management formula corresponding to the tradingstrategy. The risk management formula takes into consideration the priceselected by a trader for each individual order corresponding to thetrading strategy.

Dynamically calculating the quantity reduces the risk experienced by atrader by increasing their efficiency in placing orders. A trader willbe more likely to get orders filled at their desired prices and fortheir desired quantities while optimizing their profits. The trader ismore accurate as they no longer have to calculate the risk managementformula on their own to determine how much quantity they can afford torisk on each order. The trader is also more efficient as there is nolonger a need to manually set a quantity through an order ticket orthrough single action order entry.

As will be described in greater detail below, a trader can change theprice or the price-related value for one or more orders corresponding toa trading strategy by moving the order icons relative to a value axis ona graphical interface. In such an embodiment, the initially calculatedorder quantity for each order will be dynamically recalculated based onthe modified orders for the trading strategy.

While the example embodiments described herein with reference toillustrative embodiments for particular applications, it should beunderstood that the embodiments are not limited thereto. Those havingordinary skill of art will recognize that many additional modificationsand embodiments are possible as well.

II. Hardware and Software Overview

FIG. 1 is a block diagram illustrating an example trading system inaccordance with the example embodiments. The system includes a hostexchange 100, a gateway 102, and a client device 104. FIG. 1 illustratesa single client device that is connected to a single exchange via agateway; however, it should be understood that a plurality of clientdevices could connect to a plurality of exchanges via a plurality ofgateways.

Although each referenced component in FIG. 1 is described directly belowin their respective sections, it should be understood that thecomponents may take the form of an entirely hardware embodiment, anentirely software embodiment, or an embodiment combining software andhardware aspects. Furthermore, some of the components of FIG. 1 may takethe form of a computer readable medium having a computer readableprogram code means embodied in a storage medium. Any suitable computerreadable medium may be utilized including hard disks, CD-ROMS, opticalstorage devices, or magnetic storage devices. Also, it should beunderstood that the example embodiment may be implemented on many othersystem configurations.

A. Exchange

According to one example embodiment, host exchange 100 may include basicor more complex systems that automatically match incoming orders. Someexample exchanges include the London International Financial Futures andOptions Exchange (“LIFFE”), the Chicago Board of Trade (“CBOT”), theChicago Mercantile Exchange (“CME”), the Exchange Electronic Trading(“Xetra,” a German stock exchange), the European exchange (“Eurex”), orEuronext. Exchange 100 might also refer to other known or laterdeveloped facilities that automatically match incoming orders that arereceived from client devices. The example exchanges and other exchangesare well known in the art.

Exchange 100 allows traders to trade tradeable objects that exchange 100offers for trading. As used herein, the “tradeable object” refers simplyto anything that can be traded with a quantity and/or price. Itincludes, but is not limited to, all types of tradeable objects such asfinancial products, which can include, for example, stocks, options,bonds, futures, currency, and warrants, as well as funds, derivatives,and collections of the foregoing, and all types of commodities, such asgrains, energy, and metals. The tradeable object may be “real,” such asproducts that are listed by an exchange for trading, or “synthetic,”such as a combination of real products that is created by the user. Atradeable object could actually be a combination of tradeable objects,such as a class of tradeable objects.

According to the example embodiments, to keep participating tradersinformed of changes in a market, exchange 100 relays market informationover a transmission channel 108 to client device 104 via gateway 102.Transmission channel 108 can include any connection types being used byexchange 100, such as a T1 line, for example, and the transmissionchannel can carry information in either analog or digital format. Itshould be understood that exchange 100 could use a number of differentcommunication protocols for connecting and sending market information toclient devices. For example, exchange 100 can connect to client device104 via gateway 102 using TCP/IP, and can provide market informationusing the Financial Information Exchange (“FIX”) protocol, which is amessaging standard developed specifically for real-time electronicexchange type transactions. FIX is a public-domain specification ownedand maintained by FIX Protocol, Ltd.

Market information that exchange 100 sends to client device 104 viagateway 102 may include data that represents just the inside market,where the inside market is the lowest sell price (best offer) in themarket, and the highest buy price (best bid) in the market at aparticular point in time. Market information may also include marketdepth, where market depth refers to quantities available at the insidemarket and can also refer to quantities available at other prices awayfrom the inside market. It should be understood that market informationcan also contain other types of market information such as the lasttraded price (“LTP”), or the last traded quantity (“LTQ”). Additionally,the market information that is sent to a single trader may include orderand/or fill information related to orders associated with that trader.

Once a trader submits an order to an exchange, the exchange may processthe order using different execution algorithms, and the type of thealgorithm used may depend on the tradeable object being traded. Someexample order execution algorithms include first-in-first-out (“FIFO”)and pro-rata algorithms. The FIFO algorithm, used for some tradeableobjects listed with Eurex, for example, gives priority to the firstperson in an order queue at an exchange to place an order. The pro rataalgorithm, used for some tradeable objects listed with LIFFE, forexample, splits orders for the same price, and the orders at identicalprices are filled in proportion to their size. Also, it should beunderstood that the price order queue is a term that covers a broadrange of systems used by an exchange to conduct orderly financialtransactions such as, for example, a FIFO based system or a pro ratasystem. Also, the present invention is not limited to any particulartype of order execution algorithm, and different algorithms could alsobe used.

B. Gateway

According to the example embodiment, gateway 102 can be a computerrunning software that receives market information and order informationfrom host exchange 100. As used herein, a computer includes any devicewith memory 110 and a processor 112 capable of processing information toproduce a desired result. Thus, gateway 102 can be a computer of anysize such as a server, workstation, personal computer, or laptop, but,generally, gateway 102 can be any computer device that has theprocessing capability to perform the function described herein. Also, itshould be understood that the functions of gateway 102 could be moved tohost exchange 100 and/or client device 104 to reduce or eliminate theneed for gateway 102.

In the example embodiment, gateway 102 receives market information aswell as order related data from host exchange 100, and forwards thereceived data to client device 104. In one embodiment, while marketinformation may be transmitted between exchange 100 and client device104 using multicast transmission, order related information, such asorder fills, order requests, or order modification requests aretypically sent using unicast transmission. As known in the art, whilethe multicast allows for communication between a single sender andmultiple receivers in the network, the unicast only allows forcommunication between a single sender and a single receiver. It shouldbe understood that while there are many possible protocols that can beused to multicast and unicast information between exchange 100 andclient device 104 via gateway 102, the Pragmatic General Multicast(“PGM”) protocol could be used for multicasting, and the Point to PointProtocol (“PPP”) could be used for unicasting, for example.

Also, as known by those skilled in the art, gateway 102 may have one ormore servers to support data feeds that are received from exchange 100.In one embodiment, gateway 102 may include a price server 114 forprocessing price information, an order server 116 for processing orderinformation, and a fill server 118 for processing fill information.Generally, a server is software that responds to commands from clientdevice 104 in form of subscription. That is, a trader at client device114 can subscribe to price information, order information, and fillinformation for a particular tradeable object being offered at hostexchange 100. In one embodiment, the subscription may be established viaa process of sending a number of messages between client device 104 andgateway 102. For example, gateway 102 may first authenticate a trader atclient device 104, and then client device 104 may establish separatecommunication links, such as IP links, to each server at gateway 102. Inthe embodiment illustrated in FIG. 1, client device 104 would establishthree separate IP connections to three servers at gateway 102.

Price server 114, order server 116, and fill server 118 receiveinformation from exchange 100. According to a example embodiment, priceserver 114 may receive and process price information related to one ormore tradeable objects being offered at exchange 100, while order server116 may receive and process order related information. In oneembodiment, exchange 100 may be connected to gateway 102 using twocommunication links, a first link between exchange 100 and price server114, and a second link between exchange 100 and order server 116. Insuch an embodiment, a separate connection may exist between order server116 and fill server 118 such that, when the order information that isreceived at order server 116 includes any fill related information,order server 116 may pass the fill data to fill server 118, which maythen process and send the fill data to client device 104. It should beunderstood that the gateway configuration described above is only oneexample, and different implementations are possible as well.

C. Client Device

Client device 104 can be a computer, such as a workstation, desktop,laptop, handheld device, and so forth, that allow a trader to trade oneor more tradeable objects that are offered at exchange 100. Clientdevice 104 may include at least processor and memory. The processor andmemory, which are both well-known computer components, are not shown inthe Figure for sake of clarity. Preferably, the processor has enoughprocessing power to handle and process various types of marketinformation. The more market information is received and processed, themore processing power is example. However, any present day processor hasenough capability to perform at least the most basic part of the presentinvention.

Memory may include a computer readable medium. The term computerreadable medium, as used herein, refers to any medium that participatesin providing instructions to a processor unit for execution. Such amedium may take many forms, including but not limited to, non-volatilemedia, and transmission media. Non-volatile media include, for example,optical or magnetic disks, such as storage devices. Volatile mediainclude, for example, dynamic memory, such as main memory or randomaccess memory (“RAM”). Common forms of computer readable media include,for example, floppy disks, flexible disks, hard disks, magnetic tape,punch cards, CD-ROM, or any other physical medium with patterns ofholes, a RAM, a PROM, an EPROM, a FLASH-EPROM, and any other memory chipor cartridge, or any other medium from which a computer can read.

Client device 104 can communicate with gateway 102 via differentnetworks, such as Local Area Network (“LAN”), a Wide Area Network(“WAN”), or a wireless network via a Virtual Private Network (“VPN”),for example, or a combination thereof. Also, gateway 102 and clientdevice 104 can communicate order and market related information usingany messaging protocols, such as any proprietary messaging protocols.However, it should be understood that different networks and differentmessaging protocols could also be used.

When client device 104 receives market information and order relatedinformation from exchange 100, the received information may be displayedto the trader(s) on the visual output device or display device of clientdevice 104. However, it should be understood that the information couldbe provided to a trader using other means such as sound. The outputdevice can be any display device. For example, the display could be aCRT-based video display, an LCD-based or a gas plasma-based flat-paneldisplay, a display that shows three-dimensional images, or some othertype of display.

Upon viewing the market information or a portion thereof, a trader maywish to send orders to an exchange, cancel orders, change orders, queryan exchange, and so on. To do so, the trader may input various commandsor signals into client device 104 such as by typing into a keyboard,inputting commands through a mouse, or inputting commands or signalsthrough some other input device. For instance, a trader may click amouse button to initiate an order to buy a particular quantity of thetradeable object at a particular price. Then, client device 104preferably generates transaction information. There are many differenttypes of messages and/or order types that can be submitted, all of whichmay be considered various types of transaction information. Oncegenerated, transaction information is sent from client device 104 tohost exchange 100 over communication links.

In the example embodiment, client device 104 uses software to createspecialized interactive trading screens on terminals associated withthem. Trading screens preferably enable traders to, among other things,enter and execute orders, obtain market quotes, and monitor positions.The range and quality of features available to the trader on his or hertrading screen may vary according to the specific software applicationbeing run. In addition to or in place of the interactive tradingscreens, client device 104 could run automated types of tradingapplications.

FIG. 2 is a block diagram illustrating an example client device 200,which may be similar to the type of client device 104 shown in FIG. 1.The client device 200 can be any particular type of computing device,examples of which were enumerated above. According to the exampleembodiments, the client device 200 has a trading application 202 and anicon oriented execution application 204, both of which could be storedin a memory unit. For example, the trading application 202, whenexecuted, may arrange and display market information in many differentways, depending on how the trader prefers to view the information.

The icon oriented execution application 204 can implement theembodiments for trading using a plurality of graphical iconsrepresenting order types being offered in relation to one or moretradeable objects selected by a trader for trading, the embodiments ofwhich will be described in greater detail below. Preferably, the tradingapplication 202 and the icon oriented execution application 204 haveaccess to market information through an application programminginterface (“API”) 206, and the applications can also forward transactioninformation to the host exchange 212 via the API 206. Also, the tradingapplication 202 and/or the icon oriented execution application 204 couldreceive other types of data, such as news related data, through the API206 from outside sources.

Additionally, the trading application 202 and the icon orientedexecution application 204 could receive signals from an input device 216via an input device interface 210, and can be given the ability to sendsignals to a display device 214 via a display device interface 208, theembodiments of which will be described in greater detail below.

III. Icon Oriented Representation of Trading Strategies

FIG. 3 is a block diagram illustrating an icon object oriented executionapplication 300 that may be used for carrying out the exampleembodiments. The icon oriented execution application 300 includes anicon library component 302, an icon selection component 304, a riskmanagement component 306, a graphical user interface (“GUI”) interactioncomponent 308, and an icon processing component 310. The components 302,304, 306, 308, and 310 may include software and/or hardware elements toperform their functions. However, it should be understood that the iconoriented execution application 300 may include more or fewer componentsthan those illustrated in FIG. 3. Also, the illustrated components couldbe combined with other components. For example, the icon orientedexecution application 300 could be combined with the trading applicationcomponents of a particular client device.

The icon library component 302 may store different types of executionsicons representing order types available at different exchanges. In oneembodiment, the icons may be grouped based on an exchange, such thatwhen a trader connects to an electronic exchange, the icon orientedexecution application 300 may automatically retrieve and provide to thetrader a specific set of icons corresponding to the order typesavailable at the selected exchange. It should be understood that theembodiments described hereinafter are not limited to any specificexchange order types, and order types could include any equity,derivative, foreign exchange, or bond order types, for example.

According to example embodiments, the order execution icons may takemany different graphical formats and can be user configurable. Forexample, the icon library component 302 can include a plurality ofpreset graphical icon representations corresponding to different ordertypes being offered at one or more exchange, the example embodiments ofwhich will be described in greater detail in reference to subsequentfigures. However, the format of execution icons could also be modifiedbased on the user preferences. The modified execution icons could alsobe saved in the icon library component 302.

Once a trader connects to an electronic exchange, the icon selectioncomponent 304 may select and display to a trader via the outputinterface 318 a set of icons corresponding to the order types beingoffered at the selected exchange. In addition to defining icons based onorder types, different icons could also be used for different tradeableobjects that a trader selects for trading. In one embodiment, a tradercould select a symbol, a character, or an indicator to represent atradeable object, and the selected representation for the tradeableobject could be displayed in relation to order execution iconscorresponding to different order types associated with the tradeableobject. Also, it should be understood that the icons could takedifferent formats to represent a buy order and a sell order, and theicon size could be used to represent and control an order quantity.Thus, each icon, when used by a trader, may be already auto-populatedwith a set of parameters defined by a trader including, but not limitedto, an exchange identifier, a tradeable object identifier, a quantity,an order type identifier, and an identifier representing a buy or asell.

The Risk Management component 306 allows a trader to define riskparameters to be used for determining a quantity for each orderassociated with an order icon. According to one example embodiment,through the risk management component 306, a trader can select a riskmanagement formula to utilize during the trading session. Based on therisk management formula that is selected, the corresponding riskparameters will be provided for the trader to define. Once the riskparameters are defined, the trader can use the GUI interaction component308 to assist them in placing an order with the electronic exchange.

The GUI interaction component 308 may allow a trader to initiate theprocess of placing an order to an exchange using one of the icons.According to one example embodiment, when a trader selects a tradeableobject to trade, the icon oriented execution application 204 may displayto a trader an icon oriented execution interface that the trader may usein combination with the icons to preconfigure orders and/or tradingstrategies that can be submitted to one or more exchanges once one ormore conditions defined by a trader are satisfied. It should beunderstood that conditions defining when an order should be submitted toan exchange can take many different formats. For example, an orderassociated with an icon can be sent to an exchange when the iconoriented execution application 300 detects placement of an icon on thegraphical interface, or when a fill associated with another order isdetected, or upon detecting a predetermined time defining when an orderassociated with an icon should be submitted to an exchange. Similarly,when the icon oriented execution application 300 detects the placementof an icon, it may check to see if risk parameters have been definedthrough use of the risk management component 306. If risk parameters aredetected, the icon oriented execution application 300 will dynamicallycalculate the quantity to be used with the order(s) based on the priceof the order(s), before submitting them to the exchange. However, itshould be understood that different conditions defining when the tradingapplication 202 should be ready to send an order or a plurality oforders associated with a trading strategy to one or more exchanges couldbe defined as well.

The icon oriented execution interface may take many different formats,some of which will be illustrated in the subsequent figures. Forexample, the interface may include a value axis, and a trader may usethe value axis as a reference for placing order icons on the iconoriented execution interface. In one example embodiment, the value axismay display prices associated with a tradeable object selected by atrader for trading, any derivative of prices, or volatility of someuser-selected values. However, it should be understood that the valueaxis is not limited to displaying prices, and it could also displaydifferent values as well, and more than one value axis could also bedisplayed in relation to the same interface to represent valuesassociated with more than one tradeable object.

In another embodiment, the icon oriented execution interface coulddisplay one or more charts related to one or more tradeable objectselected by a trader for trading. For example, the chart may displayhistorical and real time quotes associated with the selected tradeableobject. In such an embodiment, the chart may be displayed in relation toa time axis, and the time intervals displayed in relation to the timeaxis could be user configurable. Also, the time displayed in relation tothe time axis may represent past and/or future time.

According to one example embodiment, when the application 204 activatesthe icon oriented execution interface and displays execution icons, atrader may select a drop down menu to define risk parameters, select oneof the icons, and position the selected icon in relation to a valueaxis, such as in relation to a specific price level on a price axis, forexample. To do that, a trader may drag an icon to a position on theinterface corresponding to the desired price level at which the traderwishes to place an order. It should be understood that more than onepoint on the interface may correspond to a specific price level. Forexample, if a value axis corresponding to a price axis is displayedvertically, a trader may position an icon at a specific price by placingit at any point corresponding to a y-coordinate of the desired pricedisplayed in relation to the price axis. Alternatively, if the graphicalinterface displays a chart, a trader could place an icon in relation toany point on the chart, and the application 204 could resolve a pricelevel for an order corresponding to the icon based on the selected pointon the chart. It should be understood that the trader could use anypointing means to drag an icon to a desired price level on theinterface, and some of the means may include a mouse, a joystick, astylus, or a human finger when an appropriate display interface is used.

In one embodiment, once the GUI interaction component 308 detectsplacement of an icon in relation to a specific price level on theprovided graphical interface, for example, the trading application 202can be ready to dynamically calculate the quantity associated with theorder based on the order placement and to send an order corresponding tothe icon when one or more conditions associated with the icon aresatisfied. It should be understood that the conditions could be based onany trader-related events, exchange-related events, or may be related todetecting predefined states corresponding to other orders. An ordercorresponding to an icon may be submitted to an exchange upon detectinga predetermined user input associated with a request to send the orderto the exchange, or upon detecting that a trader's profit or lossreaches a predetermined level. For example, once an order icon is placedon the graphical interface, the trading application 202 can dynamicallycalculate the quantity to be used with the order corresponding to theorder icon, using the predefined risk parameters. However, based on therisk management formula chosen by the trader, different risk parameterscould be used. Once the quantity is calculated the trading application202 will send the order to the exchange.

The exchange-related events may be of many different types, such asdetecting a predetermined price level related to one or more tradeableobject, detecting a predetermined volume being traded, or may includeany different events. Also, submission of an order corresponding to anicon may depend on detecting a fill corresponding to another order.However, it should be understood that the conditions triggeringsubmission of an order to an exchange are not limited to the examplesgiven above, and the conditions could take different formats as well.Also, in an alternative embodiment, an order corresponding to an iconcan be automatically submitted to an exchange when the GUI interactioncomponent 306 detects placement of the icon on a graphical interface. Itshould be understood that since any selected icon is auto-populated withorder parameters, including, among other parameters, an order type, atradeable object identifier, price, and risk parameters that is resolvedbased on a position of the icon on the interface, the order may be sentto an exchange without any user intervention once one or more presetconditions are satisfied.

When an order is submitted to an exchange, the icon processing component310 may change a format of an icon corresponding to the order torepresent different states of the order. It should be understood that atrade could be alerted about many different order state changes,including order states occurring before an order is sent to an exchange,or any order state changes once an order is sent to an exchange. In oneembodiment, the icon processing component 310 may change colors of theicon to represent different states of the order. For example, greencould be used to represent an order that has been sent and successfullyreceived at an exchange, red could represent an order that has beencancelled and confirmed by the exchange, blue could represent an orderthat has been sent to but not confirmed by an exchange, orange couldrepresent an order that is contingent upon another order having beenexecuted, purple could represent an order that has been cancelled butnot confirmed by an exchange, and gray could represent an order that hasa static state. It should be understood that the colors and order statesare only examples, and a trader could configure trader-preferred colorsand different order states as to which the trader wishes to be alerted.

FIGS. 4A and 4B are a flow chart illustrating one example method 400 fortrading using execution icons with predefined risk parameters. Themethod 400 will be described in relation to the components illustratedin FIG. 3; however, it should be understood that different componentscould also be used to execute the method. Also, it should be understoodthat the flow chart only shows the functionality and operation of apossible implementation of the present embodiments. In this regard, eachblock may represent a module, a segment, or a portion of the code, whichincludes one or more executable instructions for implementing specificlogical functions or steps in the process. Alternative implementationsare included within the scope of the example embodiments of the presentinvention in which functions may be executed out of order from thatshown or discussed, including substantially concurrent or in reverseorder, depending on the functionality involved, as would be understoodby those reasonably skilled in the art of the present invention.

At step 402, the icon selection component 304 may select a plurality ofexecution icons from an icon library to represent order types availablefor a tradeable object selected by a trader. According to an exampleembodiment, the icon selection component 304 may initiate the process ofselecting the icons once a trader logs in to an exchange and selectstradeable objects that the trader wishes to trade.

At step 404, the risk management component 306 provides, via the outputinterface 318, the means to select a risk management formula to utilizeduring the trading session. In one example embodiment, the trader canpredefine risk parameters corresponding to the selected risk managementformula, to be used in calculating the quantities associated with eachorder or a trading strategy corresponding to a plurality of orders. Forexample, risk management formulas that could be used are the KellyFormula, Constant Dollar, or Percent of Total Equity.

The Kelly Formula determines the optimal percent of equity to place oneach trade based on historical trading accuracy and allows traders toensure optimized allocation of the equity.

Another risk management formula is known as Constant Dollar. ConstantDollar defines a dollar amount to be risked for every trading strategysubmitted to the exchange. Using an automatically defined dollar amountfor every order may allow a trader to enter orders more efficiently,while not concerning themselves with order size.

Another risk management formula is Percent of Total Equity. Percent ofTotal Equity allows a trader to dynamically scale their order quantitybased on a beginning equity (or total amount allotted for trading) and auser-defined percentage of the beginning equity to risk on each order.Percent of Total Equity allows a trader to trade more aggressively ifthey desire. For example, to trade more aggressively, a trader couldincrease the percentage of the beginning equity that the trader iswilling to risk. An increased percentage will increase the potentialprofits and/or risk for a trader, just as a decreased percentage willdecrease the potential profits and/or risk. Aggressive and conservativetraders can both benefit from this risk management formula. The exampleshereinafter utilize the Percent of Total Equity risk management formula.Of course it should be understood that there are many different riskmanagement formulas that traders could use to assist in risk management.

It should also be understood that a trader could define their own riskmanagement formula and risk parameters to use while trading.

At step 406, the GUI interaction component 308 provides via the outputinterface 318 the plurality of execution icons and a graphical interfacethat a trader can use to place orders to an exchange. In one embodiment,the graphical interface, as described above, may include one or morevalue axes, such as a price axis, for example, and a trader may placeicons in relation to the value axis. Also, the graphical interface candisplay a chart illustrating historical and real-time market datacorresponding to the tradeable object. In such an embodiment, to placean order, a trader could position an icon corresponding to a desiredorder type in relation to any point on the chart, and the icon objectoriented execution application 300 could resolve the price for the orderbased on the selected point on the chart. According to one exampleembodiment, the chart is displayed in relation to a price axis and atime axis; however, different embodiments are possible as well.

At step 408, the GUI interaction component 308 detects a trader's inputplacing an icon on the graphical interface, and, at step 410 shown inFIG. 4B, the graphical interface displays the selected icon once thetrader places the icon at a desired price level. At step 412, since theicon is auto-populated with the order parameters and the icon processingcomponent 310 may determine order parameters based on the selected icon.Depending on the system configuration, at step 414, the icon objectoriented execution application 300 or the trading application 202 maysend the order to the exchange upon detecting one or more conditionsdefined for the order. As described in reference to earlier figures, theconditions can take many different formats, and can be based on marketconditions, execution of other orders, time, or any other user-definedconditions.

When the order is submitted to the exchange, at step 414, the iconprocessing component 310 may start monitoring order state changes basedon the information being provided by the exchange or based on useractions detected in relation to the icon at step 416. Then, when theicon processing component 310 detects an order state change, a format ofthe icon may be changed to reflect the order state change. As mentionedin earlier paragraphs, the icon processing component 310 can changecolors of the icons based on a number of default or user-configuredcolors for different order states, such as exchange-based state changes,user action based state changes, or the combination thereof. Forexample, the exchange-based order state changes may include receiving aconfirmation that an order has been received at an exchange, orreceiving partial fill information for the order from the exchange, orthat state of exchange or server connectivity. The trader-based orderstate changes may include, for example, detecting a user request toplace, modify, or cancel an order. Also, a predefined color can be usedto reflect a static state for an order, such as when the order isdisplayed on a graphical interface, but it has not been sent to anexchange yet, such as when the order icon is placed but the quantity hasnot yet been calculated. It should be understood that icon formats andcolors could reflect different state changes as well. For example, iconformats could also change based upon user selection of icons, draggingof icon, or placing icons on the interface.

FIG. 5 illustrates a number of example order execution icons that can beused to represent different order types. More specifically, a rectanglecan be used to represent a limit order 502, an octagon can be used torepresent a stop order 504, an octagon with an interior “L” can be usedto represent a stop limit order 506, an octagon with an interior starcan be used for a trailing stop order 508, a square with an arrowpointing down can be used for a stop and reverse position order 510, anda circle can be used for a market order 512. It should be understoodthat the order types and graphical representations thereof in FIG. 5 areonly examples, and different indicator representations for the same ordifferent order types could also be used.

As mentioned earlier, when a trader logs into an exchange and selects atradeable object for trading, the icon object oriented executionapplication 204 may display a graphical interface and a toolbardisplaying a number of icons corresponding to different order types thatthe trader can use to trade the tradeable object. FIG. 6 is a blockdiagram illustrating one example order execution toolbar 600 that can bedisplayed in combination with a graphical interface. The order executiontoolbar 600 includes six order icons described in reference to FIG. 5.As shown in FIG. 6, each order icon may be associated with a pull downmenu enabling a trader to modify default values that have beenpredefined for the icon. Using the pull down menus a trader may alsodefine risk parameter values that have not yet been defined.

As illustrated at 602, a trader can use the pull down menu to select anorder quantity 604, a time when the order should be submitted to anexchange 606, or an exchange to which the tradeable object should besubmitted 608 (such as when a tradeable object is offered at more thanone exchange, and the trader is willing to have his order sent to any ofthe exchanges). Additionally, the order execution toolbar 600 may allowa trader to select the tradeable object icon 610 to select one ore moretradeable objects that the trader wishes to trade. Lastly, the tradercould select the risk icon 612 to define risk parameters for auser-selected risk management formula. As previously stated, a tradercould select the pull down menu to manually set a quantity by selectingthe order quantity icon 604. Alternatively, the order quantity could bedetermined dynamically. To do so, a trader could select the risk icon612 to define a desired risk management formula and to set riskparameters to be used with the formula. One of these options could bechosen to override the other by a trader. It should be understood thatwhen a trader selects one of the icons on the pull down menu 602,another pull down menus may be displayed to represent choices associatedwith the selected icon. For example, the selection of the risk icon 612on the pull down menu 602 may invoke another menu with specific riskmanagement formulas and their corresponding risk parameters. It shouldbe understood that the pull down menu options are only examples anddifferent order-related, exchange-related, or trader-related optionscould be provided as well. For example, the pull down menu could containan option for creating trading strategies or trading on multipleexchanges.

In addition to placing single orders to an exchange using orderexecution icons, a trader could use the icons to build tradingstrategies. A trading strategy may be defined with a complex orderincluding two or more orders, where at least one order is dependent onone or more other orders in the group. For example, an Order CancelsOrder (“OCO”) is one example of such a complex order. The OCO typicallyincludes a combination of two orders that control possible loss andpossible profit that can be made when another entry order gets filled.

As mentioned earlier, using the pull down menu 602 shown in FIG. 6, atrader may select an icon to invoke another menu. For example, when atrader selects the risk icon 612, a risk management menu is invoked.FIG. 7 is a block diagram illustrating one example order executiontoolbar 700 that can be displayed in combination with a graphicalinterface with the risk management menu invoked. The order executiontoolbar 700 includes the same icons as previously described in FIG. 6,as well as the risk management menu 714.

The risk management menu 714 is used to define values associated withthe risk parameters corresponding to a specific risk management formula.FIG. 7 displays the Percent of Equity risk management formula havingbeen selected by a trader. However, different risk management formulascould be used, for example, as shown in FIG. 7, other risk managementformulas could also be used such as Kelly's Formula, Constant Dollar,and others.

Based on the Percent of Equity risk management formula, the riskparameters that can be specified by the trader include Beginning Equity716 and Risk Percentage 718. Beginning Equity 716 is defined as thetotal amount allotted to trade during the trading session. BeginningEquity is user-configurable and could be modified by a trader based ontheir profits and losses during the trading day. For example, a tradermay start with a beginning equity of $10,000 and as the trading dayprogresses the trader may make a profit of $5,000 on his beginningequity of $10,000. At that time the trader could reconfigure thebeginning equity to be $15,000.

The Risk Percentage 718 is defined as the total percentage the trader iswilling to risk on each order or trading strategy. The percentage isalso user-configurable and could also be modified based on a trader'sprofits and losses during the trading day. For example, if a trader hasmade profits throughout the trading day, the trader may wish to increasethe risk percentage from, for example, 2% to 4%.

It should be understood that beginning equity and risk percentage valuescould also be dynamically modified by the trading system. For example,the trader could define profit and loss rules through the tradingsystem. A trader could set a beginning equity rule based on overallprofits and if the profits increase by $5,000 then dynamically modifythe beginning equity to increase from $10,000 to $15,000. It should beunderstood that the risk percentage could be dynamically updated in asimilar fashion. In an alternative embodiment the risk parameters couldbe displayed on the trading screen and could be manually modified on thefly by a trading. It should also be understood that the beginning equityand risk percentage values are used as examples and that any value couldbe used.

One example embodiment for entering orders for a trading strategyincluding an OCO will be described in reference to three orders, anentry order, a profit order, and a risk order. OCO orders are aparticularly useful order type in that they allow traders to executespecific trading strategies based on market analysis, without having towatch the market. OCO orders can also be used as a risk management toolas they are way to lock in profits or protect from further losses.

FIG. 8 is a block diagram illustrating one example graphicalrepresentation of a trading strategy 800 including an OCO order usingicons of the present invention. The trading strategy 800 includes anentry order 802 and an OCO order represented with icons 804 and 806. Thegraphically represented trading strategy 800 also illustrates orderprecedence defined using arrows, in this example. However, it should beunderstood that different graphical representations for defining orderprecedence could also be used, such as numerical indicators, forexample. In this example embodiment, once the parent order associatedwith the icon 802 is filled, the OCO order pair is submitted to anexchange. It should be understood that the graphical representation ofthe trading strategy 800 could also represent a relationship between theOCO order pair corresponding to the icons 804 and 806. As known in theart, when one of the OCO orders gets filled, the other is automaticallycancelled. Such order relationship may be represented by linking the twoicons with a predefined line pattern/color, or by using any otheruser-defined graphical representation in relation to the icons.

FIG. 8 illustrates the entry order 802 using a stop order; however, theentry order could include different order types as well, such as a limitorder, a stop limit order, or a market if touched (“MIT”) order. Also,it is assumed in FIG. 8 that the icon 802 corresponds to a sell stoporder, and the OCO order icons 804 and 806 are buy stop and buy limitorders, respectively. According to a example embodiment, when a traderplaces an entry order icon on the graphical interface, the iconprocessing component 308 may automatically detect whether the iconcorresponds to a buy order or a sell order based on a position of theicon in relation to an inside market and an order type corresponding tothe selected icon. For example, if a trader places a limit order icon ora market if touched order icon below the inside market, the iconprocessing component 308 will resolve such orders as buy orders. Then,if the same icons are placed above the inside market, the orderscorresponding to the icons will be automatically marked as sell orders.In contrast, if a trader places a stop order icon or a stop limit ordericon below the inside market, the icon processing component 308 willprocess such orders as a sell stop order and a sell stop limit order,respectively. If the same icons are placed above the inside market, theicons will correspond to buy orders. It should be understood that theexample embodiments for automatic detection of buy and sell orders basedon position of an icon in relation to an inside market are not limitedto the order types given as examples above and could be applied inrelation to different order types as well. Also, an icon may beautomatically designated as a buy or a sell based on clicking the iconwith a predetermined mouse button. For example, the right mouse buttoncould correspond to a buy, and a left mouse button could correspond to asell.

Referring back to FIG. 8, when a trader initiates creating the tradingstrategy 800 including an OCO order pair, the icon oriented executionapplication 300 may also control the sequence of positioning of ordericons on the interface. In one example embodiment, the trader will firstselect and drop an entry order icon, the icon 802 in FIG. 8, then a riskstop, the icon 804, and finally an icon corresponding to a profit order,the icon 806 herein. However, it should be understood that differentembodiments are possible as well, and the trader could position icons onthe graphical interface in any trader defined sequence.

It should be understood that the trading strategy is not limited tousing OCOs and could encompass any trader-defined strategy enabling atrader to link a plurality of different orders and to define a number ofconditions that can be used by the icon oriented execution application300 to determine when each order should be sent to an exchange. In oneembodiment, a trader could define a trading strategy such that a fill ofone order may trigger a process of sending another order correspondingto the same or different tradeable object to the same or differentexchange.

FIG. 9 illustrates two example trading strategies 902 and 904 formed byconnecting a plurality of order execution icons. It should be understoodthat the trading strategies illustrated in FIG. 9 are only examples, andmore or fewer orders or different order types could be used to formtrading strategies.

Referring to the trading strategy 902, the order execution icons 906-916are connected by lines with arrows indicating the order executionprecedence. In the embodiment illustrated in relation to the tradingstrategy 902, since all arrows are pointing away from the order 912, theorder 912 is the main independent order that controls the execution ofother dependent orders. It should be understood that a trader may definea number of conditions defining when each dependent order should besubmitted to an electronic exchange. In one embodiment, the conditionsmay be based on a predetermined trigger detected in relation to anotherorder. In such an embodiment, the order corresponding to the icon 906could be submitted to an electronic exchange upon detecting a fill inrelation to the order corresponding to the icon 908, and the orderquantity of the order associated with the icon 906 may depend on thefilled order quantity of the order corresponding to the icon 908.Similarly, the order quantity could be determined based on thepredefined risk management method and the trader defined riskparameters.

Also, the determination as to which dependent order is submitted to anelectronic exchange may depend on a direction of the market. Forexample, when the order corresponding to the icon 912 is filled, theicon object oriented execution application 300 could either triggerplacement of the order 916 or 910 depending on the current direction ofthe market. Alternatively, both orders can be automatically submitted toone or more exchanges, depending on the user configuration. It will beapparent to those of ordinary skill in the art that many differentconfigurations are possible as well.

Referring back to FIG. 9, the trading strategy 902 also includes a timedorder corresponding to the icon 914. The timed order is illustrated asan order that depends on the order corresponding to the icon 912. Thetimed order can be associated with a number of time-based conditions.For example, one time could define when the order 914 should besubmitted to an exchange once a fill for the order 912 is detected.Alternatively, the timed order can be submitted to the exchange at somespecified time when no order quantity associated with the order 912 isfilled until some specified time. It should be understood that differentembodiments are possible as well.

The second trading strategy includes four orders corresponding to icons918-924, where the icon 920 corresponds to the main independent order,and the other icons correspond to the dependent orders. The executionand placement of the dependent order may depend on any conditionsdescribed above in relation to the trading strategy 902; however, itshould be understood that different trader-defined rules could also beused. For example, in addition to making some orders contingent onexecution of another order, an order quantity corresponding to adependent order may be contingent on an order quantity that is filledfor an independent order. In such an embodiment, if only a portion ofthe independent order is filled, and one or more dependent orders arerespectively triggered, the original order quantities of the dependentorders may be dynamically adjusted based on the order quantity filledfor the independent order.

FIG. 10 is a block diagram illustrating another example embodiment forrepresenting a trading strategy 1000. The trading strategy 1000 includesthree orders represented with three icons 1002, 1004, and 1006. In theembodiment illustrated in FIG. 10, the icons include graphicalindicators that may enable a trader to quickly distinguish anindependent order from dependent orders. More specifically, the icon1004 corresponds to the independent order and includes two graphicalindicators 1010 and 1012 on both sides of the icon 1004 from which thelines connecting other orders originate. Then, dependent orders includesingle indicators, such as indicators 1008 and 1014 corresponding todependent orders 1002 and 1006, respectively. It should be understoodthat the indicators corresponding to independent orders and dependentorders could also be color-coded to enable a trader to distinguish thetwo order types even quicker. Also, it should be understood that theindicators could take different formats as well, such as numbering oforders based on the order dependency.

In addition to indicators that represent order dependency, the ordericons 1002 and 1006 corresponding to the dependent orders include timesetting icons 1016 and 1018 that can be used by a trader to define atime when each order should be submitted to an exchange. For example,when the order icons are displayed on a graphical interface in relationto a time axis, a trader could drag each time setting indicator to aposition on the interface corresponding to a desired future time whenthe trader wishes to have the order submitted to an exchange. In oneembodiment where the axis displays past time, the axis could bedynamically moved with the movement to time setting indicator to enablea trader to position the indicator at the desired future time on theaxis.

Also, indicators corresponding to orders may display an order quantitycorresponding to each respective order. The order quantitiescorresponding to orders associated with the indicators 1002-1006 aredisplayed in rectangular boxes 1020-1024 attached to the left sides ofeach indicator. However, it should be understood that order quantitiescould be displayed in relation to the indicators in any otheruser-configurable manner, and order quantities corresponding to theorders could be modified by changing the size of each icon.

FIGS. 11A and 11B are block diagrams illustrating graphical interfaces1100A and 1100B that can be used for pre-configuring orders using iconsaccording to one example embodiment. In one embodiment, the iconoriented execution application 202 may display the graphical interface1100A when a trader logs in to an exchange and selects a tradeableobject that he wishes to trade.

Each graphical interface includes a value axis 1108 that in this exampleembodiment displays a number of price levels associated with thetradeable object. In one embodiment, the value axis 1108 may be a staticaxis or scale of values, such as prices, and the portion of the axis1108 that is being viewed may be changed by scrolling up or down theaxis or by entering a repositioning command. Alternatively, values donot need to be displayed in relation to the axis 1108. Also, the valueaxis can be displayed horizontally, n-dimensionally, or in any otherfashion. It should be understood that while the example embodiments forusing order execution indicators are described in reference to thedisplay illustrated in FIGS. 11A and 11B, the present invention is notlimited to any particular display.

Referring back to FIG. 11A, the interface 1100A also includes an orderexecution icon toolbar 1106 that has been described in greater detail inreference to FIG. 6. As described in reference to FIG. 8, the iconprocessing component 310 can automatically detect whether an order is abuy or a sell order based on a position of an icon in relation to aninside market, and further based on order type associated with theselected icon. However, rather than using the automatic detection, theorder execution icon toolbar 1106 may enable a trader to select a buyorder or a sell order in relation to each icon by simply selectingeither buy or sell in a pull down menu associated with the desired icon.Alternatively, two different order execution icon toolbars could bedisplayed, with one corresponding to buy orders and anothercorresponding to sell orders. Additionally, the interface 1100A provideshistorical and real-time market data in a chart format at 1110, wherethe market data illustrated at the most right hand side of the chart1110 correspond to the present time. In the illustrated embodiment, thehistorical and real-time market data are displayed in a bar chartformat. However, it should be understood that different types of chartsor non-charting applications could also be used to represent historicaland present time quotes.

According to one example embodiment, the interface 1100A allows a traderto electronically transmit orders to an exchange by selecting one of theicons from the icon toolbar 1106, and dragging the icon to a position onthe interface corresponding to a predetermined price, as shown inrelation to an icon 1102A. As mentioned in reference to earlier figures,the order corresponding to the icon can be automatically submitted to anexchange upon detecting one or more conditions. Alternatively, the ordermay be automatically sent to an exchange once the icon is dropped at adesired price level on the interface and the quantity may be dynamicallycalculated once the icon is positioned at a desired price level. Also,it should be understood that while the icon 1102A is being moved to adesired price level, the trader can view the price levels during theprocess of moving the icon to the desired price level. Similarly, as theicon is being moved to a desired price level, the system could displaywhat the quantity would be calculated to be if the icon was positionedat that price level. As illustrated in FIG. 11A, such prices andquantities can be displayed in relation to the icon 1102A, such as in ablock illustrated at 1104. Also, as mentioned in reference to precedingfigures, the icon object oriented execution application 204 can resolvethe prices and quantities based on a position of the indicator inrelation to the axis, such as based on a y-coordinate position of theicon on the interface in this particular example. Alternatively, if thetrader selects a specific point on the chart, the application 204 canresolve the price and quantity for the new order using the selectedpoint on the chart.

Referring to FIG. 11B, once the trader positions the icon at the desiredprice level, as shown at 1102B, the trading application 202 can be readyto send the order to an exchange once one or more conditions aresatisfied. If the trader has defined risk parameters to associate withthe order represented by order icons, then as the trader initiallypositions and moves the icon the trading application 202 willdynamically calculate the quantity. However, if risk parameters are notdefined the order will be found ready to send to the exchange at thattime. Also, the interface 1100B can display an order ticket 1112reflecting order parameters when the order will be sent to an exchange.The order ticket may include trader-related as well as order statusrelated information. The example order ticket 1112 includes a trader'saccount identifier, a tradeable object identifier associated with theorder, a price level at which the order has been placed, and either adefined or dynamically calculated order quantity. It should also beunderstood that the order quantity could also be displayed next to theorder icon instead of in the order ticket. Also, the order ticket 1112defines whether the order is a buy order or a sell order, and the statusof the order. In the example given in relation to FIGS. 11A and 11B, theorder is a sell order, and the displayed status of the order is “sent.”It should be understood that the displayed status of the order maychange as the icon object oriented execution application receivesadditional information from the exchange or detects a user action, suchas a user canceling the order from the exchange. In one embodiment, atrader could cancel an order by simply dragging an icon corresponding tothe order away from the graphical interface. Alternatively, theinterface could include a designated location to which a trader can dragan icon to cancel an order corresponding to the icon. However, it shouldbe understood that different methods for canceling orders could also beused, such as detecting a predetermined key combination input, orclicking on an icon using a predefined mouse button.

FIGS. 12A-12D are block diagrams illustrating graphical interfaces1200A-1200B that can be used by a trader to configure tradingstrategies. The interfaces include the interface elements that have beendescribed in relation to FIGS. 11A and 11B, including a price axis 1208,an icon toolbar 1206, and a chart 1210 providing historical and realtime market data, such as any market quotes, related to a tradeableobject. Referring to FIG. 12A, a trader may place a first order thatwill be sent to an exchange upon detecting one or more predefinedconditions by selecting one of the icons on the toolbar 1206 and placingthe icon at a desired price level, such as an icon 1204. In oneembodiment, when the trader selects the icon 1204 from the toolbar, oneof the options from a pull down menu may include a trading strategyoption that, when selected by the trader in relation to the first order,may automatically launch the process of creating a trading strategy. Insuch an embodiment, the first icon selected by a trader may beassociated with an independent parent order. Referring back to FIG. 12A,once the parent order icon is placed on the interface, the icon objectoriented execution application 202 may display an order ticket 1202defining potential order related and trader related information once theorder corresponding to the icon is sent to an exchange.

When the trader places the parent order icon on the interface, the nexticon selected by the trader and corresponding to a dependent order maybe graphically linked to the icon 1204 to illustrate the order executionprecedence. For example, in FIG. 12B, the trader may select a secondicon to correspond to a dependent order. Such icon, as illustrated at1214, may be displayed in relation to, and may be linked to the icon1204. When the trader drops the icon 1214 in relation to a specificpoint on the interface, an order ticket 1212 corresponding to the icon1214 could be displayed in relation to the parent order ticket 1202. Itshould be understood, and as illustrated in FIG. 12C, the tradingstrategy may be associated with more than two orders. The graphicalinterface 1200C also illustrates an order ticket 1216 corresponding to asecond dependent order associated with an icon 1218. FIG. 12D is a blockdiagram illustrating the trading strategy and order tickets with amodified order state statuses. More specifically, the status of eachorder, as illustrated in each order ticket, corresponds to the sentstatus.

FIGS. 12A-12D illustrate creating a trading strategy using a singlegraphical interface corresponding to the same tradeable object. However,it should be understood that a trader could create trading strategies bylinking icons on different graphical interfaces, where the iconscorrespond to order types associated with different tradeable objects.Alternatively, as mentioned in reference to earlier figures, two or morevalue axes could be displayed in relation to a single graphicalinterface, and the value axes could correspond to different tradeableobjects. For example, the value axes could be displayed in two differentareas of the graphical interface, and an order icon can be automaticallyassociated with a specific tradeable object based on the icon positionin relation to one of the axes. Further, alternatively, two or morecharts corresponding to different tradeable objects could be displayedon a single graphical interface, and positioning of an icon in relationto any point on one of the charts may be used to determine a tradeableobject that a trader wishes to trade. It should be understood thatdifferent embodiments could also be used.

IV. Dynamically Determining Order Quantity

FIG. 13 is a flow chart illustrating one example method 1300 for placingan order with predefined risk parameters corresponding to auser-selected risk management formula. It should be understood that theflow chart only shows the functionality and operation of a possibleimplementation of the present embodiments. In this regard, each blockmay represent a module, a segment, or a portion of the code, whichincludes one or more executable instructions for implementing specificlogical functions or steps in the process. Alternative implementationsare included within the scope of the example embodiments of the presentinvention in which functions may be executed out of order from thatshown or discussed, including substantially concurrent or in reverseorder, depending on the functionality involved, as would be understoodby those reasonably skilled in the art of the present invention.

The trader has selected a desired icon from the icon toolbar, such asshown at 1206 in FIGS. 12A-D, to place on the graphical interface. Oncethe desired icon is selected from the icon toolbar, the pull down menu,described in FIGS. 6 and 7, is invoked. The pull down menu provides avariety of selections for the trader. Based on the trader's selection,another pull down menu may display on the trading screen, or the tradermay have the option to set parameter values to associate with the order.

At step 1302, the trader has selected the risk option from the pull downmenu. Another pull down menu may be invoked and the trader can select arisk management formula to utilize for the trading session. A trader candefine the one or more risk parameters once the desired risk managementformula is selected. Based on the example described earlier, it may beassumed that the Percent of Total Equity is the selected risk managementformula. However, it should be understood than any risk managementformula could be selected.

Once the risk management formula is selected the trader can predefinethe one or more corresponding risk parameters. When using the Percent ofTotal Equity, the corresponding risk parameters are a “Beginning Equity”and a “Risk Percentage”. Beginning Equity is defined as the total amountallotted to trade at that time. For example, a trader defines thebeginning equity to be a value of $100,000.

The Risk Percentage is defined as the total percentage the trader iswilling to risk on an order. Similarly, the trader defines the riskpercentage to be a value of 2%.

Using the predefined risk parameters, the trading application can applythe Percent of Total Equity Formula to calculate the quantity availableto trade. Based on the calculation below, the trader has a total of2,000 to risk on an order.

Beginning Equity*Risk Percentage=Qty available to risk while maintainingprofits $100,000*2%=2,000

In one embodiment, once the trader has selected a risk managementformula and defined the risk parameters corresponding to the riskmanagement formula, the trader can now place an order via the graphicaluser interface. At step 1304, the trader can select an icon from thetoolbar as displayed in one of the graphical user interfaces in theprevious figures. If the trader has also selected the option from thepull down menu that will automatically create a trading strategy, thenthe first icon selected by a trader will be associated with anindependent order and subsequent selected icons will be dependent ordersbased on their placement in relation to the entry order. In this examplethe independent order is an entry order and the dependent orders are aprofit order and a risk order. This may be a user-configurable setting.

To place an order according to one example embodiment, the trader candrag the order icon from the icon toolbar to the desired price level forplacing the order to the electronic exchange. As a result of the traderdefining risk parameters and selecting the automatic creation of tradingstrategies, the trading system will recognize that the order is an entryorder and that it should not send the entry order to the exchangeimmediately, but will instead wait until all orders have been placed. Atwhich point the trading system may dynamically calculate the quantityfor the orders that have been placed.

It should be understood that the trading system could also calculate thequantity for an order icon as the trader is positioning the icon;according to this example. As the icon passes through different pricelevels the quantity would change. This would also aid the trader indetermining where to place order icons.

To illustrate one example embodiment, the trader drags the first ordericon to a price of 983.00 along the price axis in the graphicalinterface. If the trader only placed one order, that entry order wouldbe submitted with a quantity of 2000. The same method can be applied totrading strategies containing multiple orders. For example, the traderis interested in submitting a trading strategy which contains multipleorders. The trader then drags a second order icon to a price of 990.00along the price axis, which corresponds to a profit order. Similarly,the trader then drags a third order icon from the tool bar to a price of975.00, corresponding to a risk order, which completes the OCO tradingstrategy.

At step 1306, the system considers the prices of each of the orders tocalculate the quantity for each order. The system determines the totalrisk associated with the orders by taking the difference between theprices of the entry order and risk order. For example, the differencebetween the entry order and the risk order is 983.00−975.00=8.00. Thedifference is considered to be the total risk. The system then takes thepreviously determined quantity available to risk and divides it by thetotal risk to calculate the quantity for the entry and risk orders inthe trading strategy.

Qty available to risk/total risk=Quantity to associate with each order2000/8=250

Based on the calculation, a quantity of 250 will be dynamicallyassociated with the entry and risk orders placed on the graphicalinterface. According to the example embodiments, the trading system willautomatically recognize that the trader is now finished placing orderson the interface, that the quantities have been calculated, and that theentry and risk orders are ready to automatically submit to the exchange.The entry and risk orders are then submitted to the exchange. The profitorder is not submitted to the exchange until the entry order ispartially filled.

When the entry order quantity is partially filled, the system will thendetermine the quantity for the profit order placed at a price of 990.00.The system directly relates the quantity partially filled from the entryorder to the quantity of the profit order. For example, if the entryorder is placed with a quantity of 250 and 200 of that quantity ispartially filled before the market moves up, the profit order willassume a quantity of 200. If only 100 of the quantity associated withthe profit order is partially filled, and the market proceeds to movedown, the remaining unfilled quantity, then the risk order quantity ismodified to equal:

Entry order filled quantity−profit order filled quantity=risk orderquantity 200−100=100

At step 1308 the trader may decide to modify the prices at which ordersare pending. If the market is extremely volatile, it could shift andmove in a moments notice. Since the trader has entered multiple orders,the trader is most like covered for a movement in either direction.However, based on market conditions, the trader may need to decide ifmodifying the orders would increase profits and reduce risk at thattime.

At step 1310, the system may dynamically adjust the previouslycalculated order quantities based on if the trader selects another pricefor an order. If the entry order has not yet been filled and the entirequantity still remains, the order locations can be modified and thequantities recalculated dynamically. The trader may continue to modifythe locations of each order until the order has been filled.

It should be understood that the previously described scenario is anexample and that any other values or formulas could be used to calculatethe quantities to associate with each order in a trading strategy.

FIG. 14 is a block diagram illustrating a graphical interface 1400 thatillustrates the example OCO trading strategy described with reference toFIG. 13. Similar to the earlier described graphical interfaces, theinterface 1400 includes a tradeable object identifier 1402, a timeincrement selection input 1404 for a time axis, a price axis 1406, atime axis 1408, a quote chart 1410, and an icon toolbar 1412. Theinterface also displays a trading strategy including the threepreviously described orders with reference to FIG. 13, 1414-1418associated with three order tickets 1420-1424, as well as an indicator1426 around the trading strategy to easily distinguish it from otherorders in the market and other markings on the graphical interface. Itshould be understood that any indicator could be used to distinguish thetrading strategy from other orders.

The orders 1414-1418 making up the OCO trading strategy were dragged bythe trader from the icon toolbar 1412. A trader may, at any time, placeanother order or add another order to the trading strategy by draggingone or more order icons onto the graphical interface. A trader couldalso select an order icon and delete it from the trading strategy, atwhich time the trading system would dynamically recalculate the quantityto associate with each order remaining in the trading strategy.

The order tickets 1420-1424 correspond to the orders 1414-1418,respectively. Order ticket 1420 provides the type of order, the quantityof the order, the contract, and the price of the order for the traderfor order 1414. Order tickets 1422 and 1424 provide the same informationfor their corresponding orders 1416 and 1418. It should be understoodthat the information displayed in the order ticket could be modified ordisplayed at different areas of the graphical interface. For example,the dynamically calculated quantity could be displayed in relation tothe order icon, such as next to or inside of the order icon. It shouldalso be understood that the order icon could be sized to reflect thecalculated quantity corresponding to each order, wherein a larger iconwould correlate to a larger quantity and a smaller icon would correlateto a smaller quantity.

The example embodiments discussed above describe a trading system andinterface that allow for dynamic calculation of order quantity to be usefor risk management. To dynamically calculate an order quantity toassociate with the orders in a trading strategy, the trading systemallows traders to select risk management formula and define thecorresponding risk parameters. Once the parameters are defined, thetrader can place orders through the graphical interface and the quantityto associate with each order will be dynamically calculated before thesubmission of the orders.

Along with the trader being able to optimize their potential profits,the trader is relieved from the responsibility of manually calculatingrisk management formulas and then manually determining the quantity toassociate with each order. A trader will be able to focus theirattention on market conditions, new orders, and their existing ordersinstead of how much quantity to risk on each order.

The above description of the example embodiments, alternativeembodiments, and specific examples, are given by way of illustration andshould not be viewed as limiting. Further, many changes andmodifications within the scope of the present embodiments may be madewithout departing from the spirit thereof, and the present inventionincludes such changes and modifications.

It will be apparent to those of ordinary skill in the art that methodsinvolved in the system and method for dynamically determining quantityfor risk management may be embodied in a computer program product thatincludes one or more computer readable media. For example, a computerreadable medium can include a readable memory device, such as a harddrive device, CD-ROM, a DVD-ROM, or a computer diskette, having computerreadable program code segments stored thereon. The computer readablemedium can also include a communications or transmission medium, suchas, a bus or a communication link, either optical, wired or wirelesshaving program code segments carried thereon as digital or analog datasignals.

The claims should not be read as limited to the described order orelements unless stated to that effect. Therefore, all embodiments thatcome within the scope and spirit of the following claims and equivalentsthereto are claimed as the invention.

1. (canceled)
 2. A method comprising: displaying a plurality oflocations on a graphical user interface, each location corresponding toone of a plurality of price levels, wherein the plurality of locationsare along a price axis; displaying a first order icon associated with afirst risk parameter for determining a quantity for an order based on aselected price; moving the first order icon to a first location of theplurality of locations corresponding to a price level along the priceaxis; in response to moving the first order icon to the first location,computing a first order quantity based on the first risk parameter andbased on the price level corresponding to the first location that thefirst order icon has been moved to; and sending a first order to anelectronic exchange, wherein the first order has a plurality of orderparameters comprising the first order quantity and the pricecorresponding to the first location of the first order icon.
 3. Themethod of claim 2, wherein the price levels comprise prices orprice-based values corresponding to market information received from theelectronic exchange for a tradeable object, the market informationcomprises an inside market representing a highest bid price and a lowestask price, a last traded price, and a last traded quantity.
 4. Themethod of claim 2, further comprising: displaying price values at theprice levels on the graphical user interface.
 5. The method of claim 2,further comprising: receiving a selected risk management formula; andsetting a corresponding risk parameter.
 6. The method of claim 2,further comprising: setting an additional risk parameter correspondingto the selected risk management formula.
 7. The method of claim 2,wherein the first risk parameter is a user-configured value.
 8. Themethod of claim 2, further comprising: defining a user's own riskmanagement formula and set a corresponding risk parameter.
 9. The methodof claim 2, further comprising: displaying the risk parameter in thegraphical user interface.
 10. The method of claim 2, further comprising:modifying the risk parameter; and updating the first order quantitybased on the modified risk parameter.
 11. The method of claim 2, furthercomprising: displaying the first order quantity in relation to the firstorder icon.
 12. The method of claim 2, further comprising: receiving anoverwrite command to overwrite the first order quantity with auser-defined order quantity.
 13. The method of claim 2, wherein thefirst order icon is selected from a plurality of order icons, whereineach of the plurality of order icons is associated with a tradingstrategy.
 14. The method of claim 2, further comprising: changing a sizeof the first order icon to reflect an order quantity based on a locationthe first order icon as the first order icon is being moved along theprice axis.
 15. The method of claim 2, further comprising: displaying asecond order icon associated with a second risk parameter fordetermining a quantity for an order based on a selected price; movingthe second order icon in accordance to a second location of theplurality of locations corresponding to a price level along the priceaxis; in response to moving the second order icon, computing a secondorder quantity based on the second risk parameter and based on the pricelevel corresponding to the second location that the second order iconhas been moved to; and sending a second order to an electronic exchange,wherein the second order has a plurality of order parameters comprisingthe second order quantity and the price corresponding to the secondlocation of the second order icon.
 16. The method of claim 15, whereinthe second order is a dependent order based on at least partialexecution of the first order.
 17. The method of claim 15 furthercomprising: computing the quantity of the second order based on apartial fill quantity of the first order.
 18. The method of claim 15further comprising: deleting the second order from the electronicexchange when the first order quantity is completely filled.